An approaching recession and a banking cash crisis are cutting deeply into global demand for oil, the International Energy Agency (IEA) said yesterday.
Falling demand “in the face of higher prices is now being perpetuated by weakening economic prospects,” the IEA said.
This, together with “a spiralling liquidity crisis,” could tip leading industrialized economies “into outright recession,” the agency forecast in its monthly report on global oil trends.
It cut its forecast for world demand this year by about 360,000 barrels per day from its previous monthly — and steadily falling — forecasts.
That put total demand this year at 48.1 million barrels per day or 1.1 million barrels, equivalent to 2.2 percent, less than last year’s level.
The IEA also cut its forecast for demand next year — by about 360,000 barrels per day to 47.5 million barrels per day. This implied a fall of 600,000 barrels per day, or 1.3 percent, from demand this year.
But the agency slightly raised its previous forecast for demand outside the 30 countries covered by the Organization for Economic Cooperation and Development because of “stronger-than-expected demand in almost all regions.”
It said that this section of demand would be 80,000 barrels per day higher than forecast last month. It would now total 38.4 million barrels per day this year, an increase of 1.5 million barrels per day, or 4.2 percent, from last year’s level.
Next year, this demand would amount to 39.7 million barrels per day, an increase of 1.3 million barrels per day, or 3.4 percent, from this year’s figure, and an upward revision of 40,000 barrels per day.
Under the headline “When storms collide,” the IEA said that the sharply weaker oil price was gyrating wildly because of uncertainty over the impact of two storms — hurricanes in the Mexican Gulf and the firestorm on financial markets.
The IEA said that uncertainty over the depth of the economic slowdown and the repercussions on emerging economies, a severe shortage of cash in the financial system, and damage done to some finance companies previously active in oil trading were driving high volatility in the much-weakened price of oil.
These factors, including the liquidity crisis, could put some oilfield development projects at risk, the agency warned.
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